Menlyn Rand, a resident of the Republic, aged 55 years, commenced plantation farming during the 2018 year of assessment. He and nine partners purchased a farm, they planted tree (established the plantation), and entered into a contract for the maintenance of the plantation. As a result of these activities, he was able to deduct, in the year 2018 year of assessment, a loss from farming operations of R500 000 in the determination of his taxable income.

Menlyn Rand is at present completing his tax return (IT12 form) and needs to answer the question as to whether he would like this normal tax liability to be determined under the provisions of paragraph 19(5) of the first First Schedule to the Income Tax Act. The 2018 year of assessment is the first year that he carried on farming operations.

The accountant responsible for the management of the financial affairs of the plantation partnership has indicated that the following amounts of farming taxable income are likely to accrue to Menlyn Rand in the following years of assessment

Year of assessment Farming taxable income (R)

2019 -5 000

2020 -5 000

2021 -25 000

2022 10 000

2023 30 000

2024 500 000

Menlyn Rand estimates his other non-farming taxable income will be R100 000 in year 2023 and 2024.

2.1

You are required to advise Menlyn Rand as to whether he should make the paragraph 19(5) election. Support your answer with relevant determinations. Assume that 2021 taxation legislation rates of tax, and rebates apply in years 2023 and 2024. (28)